Amazon.com posts surprise 4Q revenue miss (AP) : Technet

Amazon.com posts surprise 4Q revenue miss (AP)
Nintendo chief says Sony portable is different (AP)
Microsoft 2Q earnings edge down on slow PC sales (AP)
10 questions (and answers) about Sony’s Next Generation Portable (Ben Patterson)
Report: Hulu mulling plan to become “virtual” cable carrier (Ben Patterson)
Special report: Can Samsung change with the tech times? (Reuters)
Special Report: Can Samsung change with the tech times? (Reuters)
Amazon Kindle Book Sales Soar (PC World)
The Real Reason No One Reads Privacy Policies [INFOGRAPHIC] (Mashable)
Sony's new portable will play games against Android phones (Appolicious)
Apple, RIM, ZTE won in booming cellphone market (Reuters)
LinkedIn's IPO to test appetite for Facebook (Reuters)
Apple releases iTunes 10.1.2 (Macworld)
Expo Notes: Cross-dressing (Macworld)
Microsoft's Windows disappoints on lukewarm PC sales (Reuters)
Microsoft Presses Intel for 16-core Atom Chip (PC World)

Amazon.com posts surprise 4Q revenue miss (AP)

Posted: 27 Jan 2011 03:59 PM PST

By JORDAN ROBERTSON, AP Technology Writer Jordan Robertson, Ap Technology Writer – Thu Jan 27, 6:59 pm ET

SAN FRANCISCO – Amazon.com uncharacteristically missed Wall Street's revenue target in the fourth quarter, sending the stock tumbling nearly 9 percent and showing that not all Internet companies benefited equally from the holiday shopping season.

The results from the world's biggest online retailer highlight the unevenness of retail's recovery, as people have picked up their spending after the official end of the Great Recession but are being picky about what they buy.

Expectations were high, especially since other consumer-oriented technology companies, such as Google Inc. and Netflix Inc., wowed Wall Street with their results.

Amazon CEO Jeff Bezos noted that the company hit two important milestones in the quarter: cracking $10 billion in quarterly revenue for the first time, and selling more electronic books for Amazon's hot-selling Kindle device than paperbacks.

Still, the revenue miss jolted investors, signaling that expectations were running too hot for a company whose stock price had jumped nearly 75 percent since its 52-week low of $105.80 in July.

Analysts also focused on higher costs that hurt Amazon's profit margin. The company has spent heavily on building its shipping and "cloud computing" businesses. That factored into Amazon's forecast for lower operating income in the first quarter.

After the results were reported Thursday, Amazon shares fell $15.80, or 8.6 percent, to $168.65 in extended trading.

Net income was $416 million, or 91 cents per share. Analysts expected 88 cents per share according to FactSet. In the same period the previous year, Amazon earned $384 million, or 85 cents per share.

Revenue jumped 36 percent to $12.95 billion, but analysts were expecting $13.02 billion.

The company's first-quarter guidance of $9.1 billion to $9.9 billion in revenue was in line with analyst projections of $9.32 billion.

Amazon continues to be tightlipped about its hottest seller — the Kindle.

The device has now become the best-selling item in Amazon's 16-year history, but the company has not given specifics, other than that sales have been in the "millions." The device starts at $139.

The Kindle's rise has coincided with big shifts in the electronics industry that are forcing retailers to rethink their strategies.

Amazon has taken pains to paint the market for e-readers as additive to the overall computer market, even as evidence mounts that mobile gadgets — particularly Apple Inc.'s iPad tablet — are forcing people to think twice about how they spend their technology dollars. Apple has sold nearly 15 million iPads since they went on sale in April.

The changing dynamics of the electronics world hit retailers this holiday season.

For instance, Best Buy Co., the largest U.S. electronics chain, is picking up strong tablet and e-reader sales, but TVs and laptops have slumped.

The economic malaise continues to depress retail spending.

Holiday spending in the U.S. reached the highest level on record last year at $462 billion, according to the National Retail Federation, but would have been below pre-recession levels if inflation were factored in.

Because of Amazon's reach — the Seattle-based company shipped to 178 countries over the holidays — its results affect a swath of industries, from retailing to manufacturing to shipping. UPS and FedEx, for example, depend on online retailers such as Amazon to feed their pipelines during the busiest shipping days of the year.

Nintendo chief says Sony portable is different (AP)

Posted: 27 Jan 2011 09:20 PM PST

By YURI KAGEYAMA, AP Business Writer Yuri Kageyama, Ap Business Writer – 21 mins ago

TOKYO – Nintendo's President Satoru Iwata is unfazed by rival Sony's plans for an upgraded successor to the PlayStation Portable, confident that his company's 3-D handheld game machine going on sale next month has a competitive edge.

"We are more focused on drawing newcomers to gaming and appealing to a wide range of people," Iwata said Friday at a Tokyo news conference when asked about the possible threat from Sony. "What we do won't change because of what another company is doing."

Kyoto-based Nintendo Co.'s 3DS — which goes on sale Feb. 26 in Japan for 25,000 yen ($300) and in the U.S. on March 27 for $250 — offers glasses-free 3-D gaming.

Sony is promising that its "next generation portable" announced Thursday and code-named NGP will have graphics quality on a par with its home console PlayStation 3.

But the NGP does not offer 3-D — making that a critical feature that could determine the winner vs. the loser in the ongoing competition between the two companies.

The price for the NGP has not been announced. Sony said it will go on sale late this year but did not give details on dates or regional rollouts.

On Thursday, Nintendo reported a 74 percent tumble in profits for the April-December period, with earnings battered by a surging yen and momentum waning on its home console Wii sales compared to the previous year.

Sony reports earnings next week.

Microsoft reported Thursday slightly lower, but better than expected, profit for the latest quarter from a year ago, as the popularity of its Kinect controllers helped boost sales of the Xbox 360 console and games.

Parakh said revenue in that division was higher than expected, indicating that people weren't just buying Kinects — they were getting Xbox consoles and games

Iwata acknowledged sales had lost momentum. But he stressed Nintendo, which makes Super Mario and Pokemon games, was at the top in market share, compared to Sony and Microsoft Corp. in most regions.

Nintendo has so far sold 145 million DS portable machines around the world, outpacing the 64 million of the PlayStation Portable. U.S. software company Microsoft makes the Xbox 360 home console. It does not offer a portable game machine.

All game makers face a new challenge — the popularity of smartphones, including the iPhone, for playing games. People are also using other devices such as the iPod and iPad to play games.

Iwata said he was confident about the 3-D technology in the 3DS, which his company has been working on for many years, and that in the end customers will decide which machine they want.

He acknowledged he was being more careful about commenting on the NGP after he angered some people by brushing off Apple Inc.'s iPad as "a big iPod Touch" last year.

"It is clear that it's trying to appeal to customers in a different way from us," he said of the NGP. "But I realized I shouldn't even be talking about my first impressions."

Microsoft 2Q earnings edge down on slow PC sales (AP)

Posted: 27 Jan 2011 08:54 PM PST

By JESSICA MINTZ, AP Technology Writer Jessica Mintz, Ap Technology Writer – 47 mins ago

SEATTLE – Microsoft Corp.'s net income for the latest quarter fell slightly from a year ago but the software giant still beat Wall Street's expectations despite the weak personal computer market.

Sales of Office 2010 to businesses buoyed the results, as did the popularity of Kinect, Microsoft's new motion-sensing controller for the Xbox 360 video game system.

The results for October through December leaked online more than an hour before they should have been released, prompting a temporary spike in trading before the markets closed. After investors had time to digest the full report, however, it became clear that a solid quarter isn't enough to give the company's shares more than a temporary lift. Companies carefully time the release of key financial information to comply with complex Securities and Exchanges Commission rules.

Much of Microsoft's business depends on selling copies of the Windows operating system and Office desktop software, both of which are tied to the health of the personal computer market.

Revenue in the Windows division plunged 30 percent to $5.1 billion. Microsoft launched Windows 7 in the same quarter of 2009, making for a tough comparison. Meanwhile, in the 2010 quarter, worldwide personal computer shipments only grew about 3 percent as Apple Inc.'s iPad and the promise of more tablet devices to come made consumers think twice about what kind of device to buy.

Sid Parakh, an analyst for McAdams Wright Ragen, said Microsoft's revenue was weighed down by the rising share of sales coming from emerging markets where prices are lower.

The division that sells Office software and other programs, however, saw revenue rise 24 percent to $6 billion. Companies that put off buying new technology during the worst of the recession are more willing now to upgrade their systems. Microsoft said the division's revenue from businesses rose 18 percent while revenue from consumers jumped 49 percent, both because of sales of Office 2010.

On the consumer side, Microsoft may have increased Office sales with its strategy of installing a free but limited version of Office 2010 on new computers and making it easy to pay to upgrade, instead of making people buy a boxed copy.

Strength in the entertainment and devices division, which is responsible for Xbox 360, also helped make up for weak Windows sales. Microsoft had already said it sold 8 million Kinect controllers, which helped push revenue for the segment up 55 percent to $3.7 billion.

Parakh said revenue in that division was higher than expected, indicating that people weren't just buying Kinects — they were getting Xbox consoles and games at a faster clip than predicted. Microsoft said in a conference call that it expects revenue in that division to rise 50 percent in the current quarter as the Kinect craze continues.

In all, Microsoft's revenue edged up 5 percent to $20 billion, topping analysts' expectations for $19.2 billion in revenue.

Net income was $6.63 billion, compared with $6.66 billion in the same period last year.

Thanks to stock buybacks, its net income rose to 77 cents per share, from 74 cents. Analysts surveyed by FactSet were expecting net income of 68 cents per share for the fiscal second quarter.

Microsoft still needs to prove to investors that it is heading in the right direction in areas where it currently trails the market leaders.

Thursday's report included a wider loss in the online division, which is mostly made up of online advertising. Google Inc., which makes almost all of its money from online advertising, saw its earnings in the same period rise 29 percent to $2.5 billion.

Devices running a new smart phone system, Windows Phone 7, went on sale during the quarter. Microsoft said it sold two million licenses to phone hardware makers, but did not say how many Windows phones were sold.

The software maker rushed out its earnings report a few minutes early, just before the markets closed for the day, after its shares spiked to more than $29 per share in heavy trading about 15 minutes before the closing bell. They dropped back to close at $28.87, a gain of 9 cents for the day, and they slipped 16 cents to $28.71 in extended trading.

"Hey, you beat, but your core business, where most of your profitability comes from, is lagging," is what Parakh said investors are probably thinking. "If you take the miss on the Windows business and put in the context of what people said for many years — that Windows is basically going to go away at some point — people are probably putting those two things together and saying, this is just the beginning. Tablets are just going to completely eat into PC sales."

Sandeep Aggarwal, an analyst for Caris & Co., noted that this was the third quarter in a row where investors have been unmoved by Microsoft's better-than-expected results. That's because they're focused on the competition Microsoft faces from the iPad, iPhone and Android, Google's software for phones and tablets.

"Earnings can provide some support, but it's really success in the mobile and tablet markets which will create more excitement among investors," Aggarwal said.

More than an hour before Microsoft issued its report, a company called Selerity sent the information to institutional investor customers and a partner site called StockTwits. Selerity uses search technology to scoop up information, including data from earnings reports.

In an interview, Selerity CEO Ryan Terpstra said the company found the report early because Microsoft uses a similar Web address for earnings information every quarter.

Terpstra said Selerity analysts verified that the information was on Microsoft's public site before it published the results.

In a statement, Microsoft's general manager of investor relations called what Selerity found "a preproduction draft of our earnings release." Microsoft posted its official numbers ahead of schedule after consulting with Nasdaq and is reviewing its procedures to avoid a repeat.

This has happened before to other companies, including The Walt Disney Co. last year. A reporter accessed its quarterly report by guessing the Web address Disney would use, based on the pattern used in past quarters.

10 questions (and answers) about Sony’s Next Generation Portable (Ben Patterson)

Posted: 27 Jan 2011 01:50 PM PST

By Ben Patterson ben Patterson – Thu Jan 27, 4:50 pm ET

Got questions about Sony's just-announced PSP2—I mean, the Next Generation Portable, or NGP for short? Help is here.

1. When will the NGP go on sale, and how much will it cost?
The NGP should arrive in time for the holidays, says Sony, which didn't give an exact release date during its Tokyo press event early Thursday.

Sony didn't reveal pricing, either—probably because they're still weighing what a reasonably price tag might me, given the NGP's souped-up hardware. I'm guessing the NGP will cost at least $300 or more, but the head of Sony Computer Entertainment Europe has assured Eurogamer that the final stick price will be "affordable" and "appropriate for the handheld gaming space." (As a point of reference, Nintendo's upcoming 3DS—the new DS console with a glasses-free 3D display—will arrive next month for $250.)

2. Now, wait a minute—is this the same thing as the new PlayStation Phone?
No. The Next Generation Portable (which is just a code name, by the way) is a full-on, handheld gaming console. The NGP will arrive with support for wireless 3G data for Web, multiplayer gaming, and keeping tabs on your fellow gamers—but it won't do voice calls (or at least not on cellular networks).

The confusion is understandable, though. For months, there have been rumors of Sony working on an Android-powered PlayStation phone—and indeed, Engadget recently posted a lengthy hands-on of the still unannounced Xperia Play, which is expected to be unveiled next month at Mobile World Congress (an annual trade show for mobile gear) in Barcelona.

While Sony didn't officially announce the Xperia Play on Thursday, it did confirm that it will begin offering original PlayStation games and other "PlayStation-quality" content for Android handsets (including, presumably, the Xperia Play) later this year through its new PlayStation Suite app. Only Sony-certified Android handsets will be able to run apps from the PlayStation Suite—and no, it appears that games made for the NGP (which is powered by a super-charged quad-core ARM processor that no phone shipping today can match) won't be supported.

3. So, will 3G connectivity for the NGP be free?
Again, Sony didn't go into detail about how much 3G plans for the new console might cost, except to tell Eurogamer that it is "working hard" on partnerships with carriers. Free 3G for NGP gamers would indeed be awesome, but I doubt it'll happen.

4. What if I'm not interested in 3G?
A Wi-Fi-only version of the NGP will be available if you'd rather not cough up for a 3G data plan, says Sony.

5. What about battery life? Won't the five-inch display and that souped-up processor soak up a lot of juice?
Sony didn't give an estimate in its official NGP specs, but a Sony exec told Kotaku that its "target" is to match the PSP 3000's battery life—anywhere from four to six hours. The proof will be in the pudding, of course.

6. Any news on Remote Play support?
Nothing yet, although there's been some interesting talk of being able to start a game on the NGP and continue it on your PS3. The current Remote Play feature on the PSP lets you access the PS3's Xross Media Bar for playback of music, videos, and slideshows; several PSN games, including all PS One games, also support Remote Play.

7. What's the new rear touchpad for?
Sony is touting the NGP's rear touchpad as an innovative way to interact with games without getting your fingers in the way of the main display. Of course, its success or failure will depend on how developers incorporate the touchpad into their games.

A demo of the NGP version of Uncharted showed how you could use the touchpad to help Nathan Drake shimmy up a vine—interesting, but it seems like making Drake climb with a nudge of one of the analog nubs would've worked just as well.

That said, another demo of a new title called Little Deviants looked more compelling, with the rear touchpad used to let your fingers manipulate the game's environment from beneath, like a hand under a carpet. Neat:

8. Speaking of games, what NGP games will we be getting at launch?
The exact NGP launch lineup probably won't be announced until later this year, but among the games mentioned during Thursday's press conference were Killzone, Uncharted, WipEout, LittleBigPlanet, Call of Duty, and Resistance, along with a smattering of other titles (such as Hot Shots Golf, Hustle Kings, and the aforementioned Little Deviants).

Kotaku notes that ports of a few other big PS3 titles, including Metal Gear Solid 4 and Lost Planet, were demoed running on the NGP, but that they've yet to be announced as actual NGP games.

9. Will my old PSP games work on the NGP?
Sony promises that yes, the NGP will be backward-compatible with old PSP titles. The catch? Like the PSP Go, the NGP lacks a physical UMD drive, meaning that only downloadable PSP games will work. Given that Sony has yet to devise a way to transfer UMD games to flash memory cards for the Go, it seems unlikely you'll ever be able to play your disc-based PSP games on the NGP. Yep, that's a bummer.

10. What else will you be able to do on the NGP besides play games?
NGP users will get access to the online PlayStation Store, which includes downloadable TV shows, movies for rental and purchase, and comic books. Meanwhile, Sony's official NGP teaser hints at Web, chat, and mapping apps.

Correction: In my original post, I wrote that Remote Play doesn't support games; in fact (and as noted above), several PSN games, including all PS One titles, are supported. Sorry about that.

— Ben Patterson is a technology writer for Yahoo! News.

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Report: Hulu mulling plan to become “virtual” cable carrier (Ben Patterson)

Posted: 27 Jan 2011 08:40 AM PST

By Ben Patterson ben Patterson – Thu Jan 27, 11:40 am ET

Is Hulu, our favorite source of free TV shows, about to undergo a radical change? Word has it that the three main stakeholders of Hulu are feuding over whether to keep the site (mostly) free or turn it into a paid service offering live TV channels—a kind of virtual, online cable carrier.

It doesn't sound like any hard-and-fast decisions have been made quite yet, but the Wall Street Journal reports that Hulu equity partners NBC Universal, News Corp., and Disney—the parent companies of NBC, Fox, and ABC, respectively—are at odds over Hulu's future.

Indeed, the Journal claims that Disney and News Corp. are even considering yanking some of their free shows from Hulu, in favor of selling them to for-pay online video services like Netflix, Apple, and Microsoft (which has its popular Xbox Live streaming service for Xbox 360 gamers).

The lengthy Journal piece details mounting tensions among the various Hulu stakeholders and management, with the networks fretting that by giving away their shows on the Hulu website, they're essentially biting the hands of cable and satellite operators who pay big bucks to carry their shows. (The pay-TV industry, meanwhile, is seeing a slow, steady slide in the overall number of subscribers.)

Of course, that dilemma would be a little less pressing were Hulu making more money, and as the Journal points out, Hulu had a grand plan for doing just that: Hulu Plus, the paid subscription service that launched last summer.

Initially priced at $10 a month, the service offers access to a deeper catalog of TV shows and seasons, as well as Hulu access for those with iPhones, iPads, Android handsets, the PlayStation 3, Roku, and various other Hulu-enabled set-top boxes and HDTVs. Hulu eventually dropped its monthly Hulu Plus fee to $8, with many industry observers seeing the price drop as a reaction to increasing competition from Netflix's burgeoning collection of streaming TV shows.

Apparently, however, the revenue from Hulu Plus isn't enough for some of Hulu's stakeholders, who—according to the Journal, at least—are cooking up a new, radically different strategy: turning Hulu into a pay site with live TV channels, complete with the same kinds of bundles you'll find on your local pay-TV carrier.

Hulu hasn't made the decision to become what the Journal calls a "virtual cable operator" quite yet, the Journal reports, but it sounds like the option is most definitely on the table, with the thought being that some Hulu content would continue to be free.

In any case, if you're a fan of free Hulu, well … enjoy it while it lasts.

Related:
Hulu Reworks Its Script as Digital Change Hits TV [Wall Street Journal]

— Ben Patterson is a technology writer for Yahoo! News.

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Special report: Can Samsung change with the tech times? (Reuters)

Posted: 27 Jan 2011 09:04 AM PST

By Miyoung Kim Miyoung Kim – Thu Jan 27, 12:04 pm ET

SEOUL (Reuters) – Only a handful of reporters were at Samsung's booth at the Consumer Electronics Show in Las Vegas earlier this month when Jay Y. Lee dropped by.

They had been tipped that the sheltered heir to the Samsung business empire was about to make his first public appearance since his father named him one of the new presidents of the conglomerate's flagship, Samsung Electronics, in December.

Most of the Korean media contingent eagerly awaiting his appearance at the show had been diverted to another news conference. They didn't miss much. Jay Lee's remarks were brief and bland. He mainly wanted to make it clear his ambition was to be a chip off the old (and equally aloof) block.

"I'm trying very hard to learn his challenging attitude and personalize it," said Jay Lee, 42, the only son of Samsung Group Chairman Lee Kun-hee. "The chairman has this DNA that just won't let him be seen being beaten," said the boyish-looking Lee, wearing rimless spectacles and a business suit with an open collar.

His father's formula has helped turn Samsung into a top global brand over the past decade or so, boasting a market value of $143 billion, bigger than Intel and Hewlett Packard and equal to the combined value of Sony Corp, Nokia, Toshiba and Panasonic Corp.

Yet that's still less than half of Apple's $320 billion market value.

Samsung, which has had better net earnings than any other global tech firm except Microsoft and IBM over the past decade, is set to report its lowest profit in six quarters when it issues December quarter corporate results on Friday, although 2010 will be another record profit year.

The outlook for this year and beyond is unclear as global technology firms grapple with weak demand and falling prices for memory chips and flat screens, and new players enter the market for smartphones and tablets.

Successful business leaders are very good storytellers, it is often said, and the industry is looking for a new narrative from Samsung, as it passes the generational torch while trying to evolve into a more innovative and content-driven company.

Jay Lee, who graduated from the Seoul National University with a degree in East Asian history, has an MBA from Japan's Keio University and studied for a doctorate at Harvard, is deferring to his elders for now. But eventually Samsung will be his story to tell.

He is taking over at a pivotal point for Samsung Electronics, the world's biggest maker of flat screens and memory chips, the second-biggest mobile phone maker behind Nokia and a core holding in any emerging market portfolio.

His company faces the challenge of moving beyond being a hardware company, clever at copying ideas, to becoming more creative, better adept at software, at a time when consumer gadgets are getting smarter all the time. In short, it faces a management challenge.

In a statement to Reuters, Samsung Group said its strong performance during the aftermath of the global financial crisis has proved the value of its management model.

"Samsung's management is based on a complementary relationship between the founding family and professional managers. On the one hand, Chairman Lee Kun-hee provides long-term business visions and the basis for sustainability. On the other, professional managers bring to bear their day-to-day management skills without being unduly pressured by short-term and quarterly results."

Samsung had the biggest booth, the thinnest products, and by some accounts, the best buzz at the annual Las Vegas show. But the stars of this Las Vegas extravaganza, which drew a record 140,000 technology enthusiasts, were the tablet computers. More than 30 tablets were announced over the two-day show, and while Samsung's Galaxy Tab was one of the precious few actually in stores, all the new players pointed to Apple's iPad as the one to chase.

To catch up, Samsung has vowed to inject some Silicon Valley culture into the ranks of its salarymen.

"Does Samsung want to be Apple? Probably not," says Lee Seung-woo, an analyst at Shinyoung Securities in Seoul. "I think they'll continue to pursue their strategy of being the fast executioner. They'll be the first you'll see in the market with a copycat product when there's a new opportunity, like a tablet market. Being an innovator and creating a new market requires lots of risk and I don't think Samsung is ready yet to take that level of risk."

And yet big business is fraught with risk in South Korea, where the public seems to have a love/hate relationship with the family conglomerates, or chaebol, that have long dominated the economy.

REWARDING INNOVATION

Lee Kun-hee's visit to Samsung's new headquarters in Seoul on December 1 was his first since he reinstated himself as chairman last March, and two weeks after elevating his son to a president's position.

He had stepped down after receiving a three-year suspended jail sentence for tax evasion and breach of trust in 2008. South Korean President Lee Myung-bak later pardoned him, saying he was too important to the nation to be behind bars.

What's good for Samsung is good for South Korea, Kun-hee might well argue. His conglomerate after all accounts for around 20 percent of the country's exports and a big chunk of its GDP. Yet he is constantly exhorting his employees to act as if the company was on the verge of extinction, warning them Samsung products could all be obsolete in 10 years if they don't keep up with the times. "Change everything but your wife and children," he is fond of saying.

The elder Lee had come to Samsung Group's new headquarters -- three office towers housing 10,000 employees in Seoul -- to bestow year-end promotions and awards, including to Galaxy S smartphone designer, Lee Sung-sik.

Sung-sik, in fact, epitomized the qualities Samsung has long been known for -- a "fast executioner" who gets something quickly to market. Samsung sold 10 million Galaxy S units in just six months after a June launch, tripling its share of the smartphone market to almost 10 percent, though still trailing Nokia, Apple and RIM's Blackberry.

But Sung-sik's story also illustrates Samsung's essential challenge -- it only developed the Galaxy after Apple took the market by storm with its latest iPhone early last year.

"Thanks to iPhone, we've been to hell," said a senior executive at Samsung who did not want to be identified because he is not authorized to speak to the media. "We had more than 1 trillion won of (telecoms) profit in the first quarter (of 2010), but saw it halved the following quarter simply because we didn't have attractive smartphone lineups. We couldn't give anything to our distributors when they were asking for models to stop iPhone."

Samsung's TV business has unveiled a new business slogan," Samsung creates and others follow" but it's the other way around for other products. The Galaxy S is an imitation iPhone that runs on Google's Android operating system. And the Galaxy Tab is basically just a bigger version of its smartphone.

Samsung has yet to come up with the kind of original, iconic, market-leading products that powered rival brands such as Apple's i-series or Sony's Walkman. Nor has it taken the kind of initiatives in software that Google and Apple did to thwart Microsoft.

"If they want to pursue an innovation strategy then they can master the connected home as they already are in almost every household," said Francisco Jeronimo of market intelligence firm IDC. "They need to create services that connect and explore the different products. That's what Apple is trying to do with a service like Apple TV."

Samsung Group plans to spend 12.1 trillion won ($10.7 billion) this year on research and development, up from 10.6 trillion won last year and 8.8 trillion the year before.

The new investment is targeted at achieving global market dominance of Samsung's m major businesses, the group said in its 2011 investment plan. Samsung will hire 25,000 new workers this year, also a record.

What is not clear is how much of that will be spent on reshaping the business to add more content, on its TVs for instance, in a market where flat screens will all be offering the same features and only the cheapest producers will win in a race to the bottom.

In its statement to Reuters, Samsung said the latest fruit of its investment in research and innovation is its leadership in LED TVs and 3D TVs, products that created a new market even during the 2008-2009 global recession and brought about a paradigm shift.

Samsung's history is filled with such shifts.

THREE STARS

Jay Lee's grandfather Lee Byung-chull started Samsung or "Three Stars" in 1938 as a small trading company in Daegu city in the southeast of the country, dealing in groceries and making noodles. He expanded into insurance, securities, print media and retail as South Korea slowly rebuilt after World War II and the Japanese occupation.

Byung-chull set up Samsung Electronics in 1969, producing black and white TVs that he supposedly learned how to make by tearing apart a Sony. But it was his third son, Lee Kun-hee, who suggested Samsung acquire a Korean semiconductor firm. Though viewed as a huge risk in a market dominated by Japanese companies, the operation grew to become the worlds top memory chip-making business.

Samsung started its rise as a global brand after Byung-chull's death in 1987 when Kun-hee took the reins of the chaebol. Fond of sports cars, he made his only notable business failure with Samsung Motor. It was eventually sold to Renault during the Asian financial crisis at a significant loss.

The rapid expansion of Samsung and other chaebol was greatly aided by the country's dictators between 1960 and 1992, who directed banks to give them easy credit, regardless of the viability of their projects, and provided an enabling regulatory environment. They looked for businessmen who could deliver signature projects in record time. What mattered then was whom a businessman knew.

The chaebols borrowed so much in this cozy environment that eight of them collapsed in the Asian financial crisis and the rest were left wobbling. The "IMF crisis" that ushered in sweeping economic reforms, coupled with a more democratic system, has largely dismantled this old nexus. But as recent cases show, the creative book-keeping and payola scandals of yesteryear remain a problem.

Samsung Group shrugged off its car debacle and emerged otherwise unscathed after the Asian financial crisis. It consolidated around Samsung Electronics, which by 2005 had overtaken Sony as the world's most popular consumer electronics brand.

Now it will be the mission of the third star of the family, Jay Lee, to lead the next stage of Samsung's evolution in the fiercely competitive and ever-shifting consumer electronics industry as it battles declining margins on its core products.

Samsung's shares have risen a stunning 33 percent over the past three months to record highs, despite last quarter's profit decline, with investors heartened by Kun-hee's moves toward a generational shift in leadership and betting the change may spur growth.

By some measures, its shares are undervalued. According to an analysis by Thomson Reuters StarMine using a quantitative model, Samsung shares have an intrinsic value of 1.2 million won, well above the 999,000 won it was trading at on Wednesday.

A seamless shift in the company's leadership is certainly important to foreign investors who own half the shares of the company, and who might expect that the old Korean adage about the average lifespan of family fortunes -- "shirtsleeves to shirtsleeves in three generations" -- will not apply in the case of this family conglomerate.

BATTLE FOR SMART

Jay Lee's promotion as one of a dozen new presidents at Samsung Electronics came only a year after he was named to the newly created position of Chief Operating Officer. His 69-year-old father has said repeatedly Samsung needs young and nimble talent to deal with fast-changing markets. This has been unsettling in South Korea's Confucian corporate culture, where seniority is revered.

In last month's shakeup, the average age of Samsung's presidents was lowered by 2.1 years. In the following days, a rash of hair-dye jobs swept the offices at the new headquarters in Seoul, and hardly a grey head could be seen, said one executive who asked to be unidentified because he is not authorized to talk to the media.

With the latest promotions and his mantra about perpetual crisis, Kun-hee is clearly trying to prepare his younger corporate warriors, including his son, for the coming battles over smart products.

Despite questions around its culture of innovation, analysts believe Samsung is one of the best placed companies to deliver something fresh and exciting to rival Apple, particularly its ability to provide in-home convergence offerings with internet TVs, smartphones and tablets.

"But to capture the imagination of the public in the way the iPhone or iPad have done, Samsung will need to take risks and produce something unique that has a true Wow! factor and be first to market," said Tim Shepherd, an analyst at Canalys, a technology-focused research house.

Samsung does want to be seen as an innovator, but it's primary strategy thus far in the mobile device markets is to focus on the speedy delivery of competitive products.

Samsung uses Google's Android operating system across a range of devices, including its smartphone, and was the earliest to ship it on a tablet. But soon many others will also have Android-driven phones and tablets on the market. Differentiation will be a challenge.

"It has been difficult for companies to build differentiation in software on PCs outside of Apple," said Ross Rubin, an analyst at market research house NPD. "Samsung needs to send a stronger message around where it sees Android versus its own operating systems like Bada."

Bada, which means ocean in Korean, is at the heart of Samsung's drive to develop new revenue sources from its own Samsung App store and create synergies with its TV and tablets' business. Samsung's Bada operating system (OS) is also aimed at sharply boosting its market share in the booming smartphone market and compete with Apple, Google's Android and Nokia's Symbian platform.

Achieving this ambition won't exactly be "bada bing, bada boom" (the slang term popularized on The Sopranos TV series for something that happens effortlessly).

Bada's only edge right now, according to tech analysts, is that it improves networking and gaming on other platforms, a kind of helper OS.

Bada's open-source platform mainly supports Samsung's low- to mid-end smartphones. But Samsung is using the Android-powered Galaxy lineup to challenge Apple.

Bada, analysts say, faces an uphill battle competing as an independent platform against the likes of Apple and Android.

"It will be easy for Samsung to transform its TVs, fridges and appliance businesses, but phones require really hard work," said Robert Jakobsen, senior analyst at Denmark-based Jyske Bank, and the only one among dozens of analysts that follow Samsung Electronics with a sell rating on the company.

"Samsung's success so far in the smartphone market is based on Android, but that's an (operating system) that everybody can copy and is copying They need to innovate and add value. If they cant, price is the only feature left, which could mean lower margins."

Samsung does want to break out of the high-sales, low-margin business model and emulating Apple with its 40-percent margin on iPhone sales or Microsoft's 70 percent-profit margin from Windows.

"What we dream of is creating great content, and that will lead to more sales of our devices and downloads of our applications," said Lee Hoo-soo, executive vice president and head of Samsung's mobile software development. "We want to see more of this virtuous circle.

Samsung is pinning some of those hopes on the Galaxy S, which hit 10 million units of sales in January. Samsung expects smartphone sales will more than double this year to at least 50 million handsets as it rolls out its Galaxy lineup.

The company is also putting its money where its ambitions lie with those eye-popping investment plans. It is targeting 50 trillion won ($43.33 billion) in sales in 2020 from new growth businesses, including healthcare and renewable energy.

Samsung Electronics aims to rank among the global top 10 companies in 2020 with $400 billion in revenue, Samsung Group Vice Chairman Choi Gee-sung has said.

As part of Samsungs 10-year plan to develop next-generation growth engines, Samsung Electronics recently purchased a stake in diagnostic ultrasound maker Medison and acquired display technology firm Liquavista, the statement to Reuters said.

SUCCESSION PLANNING

For the past year as COO, Jay Lee has been overseeing Samsung's eight operating divisions, working with a dozen presidents who report to his mentor and the CEO, Choi Gee-sung, who turns 60 next week and whose pitch-black hair looks every bit as dark as Jay Lee's.

Jay Lee's fast rise to president, after just one year as COO, has raised eyebrows about his readiness to take the reins of Asia's most valuable company.

In the statement to Reuters, Samsung stressed he will continue in a supporting role to the CEO. "While his position has been elevated from executive vice president, he will focus largely on coordination of Samsung Electronics' diverse business and providing a leadership role in the company's investments."

Jay Lee makes it clear he's not wearing the mantle of authority just yet. "Chairman will continue to be in charge and I still have lots of things to learn and feel enormous responsibility already," the media-shy Lee told a local newspaper in brief remarks after he was stopped on his way out of the office.

Neither Jay Lee nor his father were made available for this report.

Jay Lee's one foray into a new venture was not fortuitous. He ran Samsung's Internet business during the dot com boom in 2000 and the firm chalked up some 20 billion won in losses before the company was folded.

Those who have met him say the divorced father of two is a personable, even charismatic individual. At the Las Vegas show, he spent most of his time in the Samsung hospitality suite wooing major customers.

Promoting Jay Lee is one thing. Positioning him to control ownership within Samsung's labyrinthine chaebol structure -- and wield power over a company with 174,000 staff in 66 countries -- is quite another.

The elder Lee's conviction three years ago stemmed from allegations by civic groups and the company's estranged chief lawyer that he had managed a political slush fund, and had helped his son buy shares of Samsung Group subsidiaries at unfairly low prices in a scheme to hand over control of the conglomerate to him.

Prosecutors were unable to prove either of those charges. But after that whole controversy, Kun-hee is likely to take a more subtle approach to restructuring Samsung as he transfers ownership to his three children, the third generation of the Three Stars company.

The restructuring will begin with companies where Jay Lee is the top shareholder, analysts say. He owns 25 percent of unlisted amusement park operator Everland, which is at the crux of a spiderweb of crossholdings among companies in the Samsung chaebol. Some companies will be listed, others will be merged to simplify the structure.

Samsung Group has also elevated Kun-hee's daughter, Lee Boo-jin, as president of Hotel Shilla and Everland.

The strength of the chaebol has always been their ability to make these kinds of decisions -- act quickly and move money around when the company is in trouble without fussing with a board or shareholders.

But the conglomerates have long been criticized for their enormous economic power, hierarchical and sometimes opaque governance, and dubious wealth transfers among family members.

"The fact that Samsung depends heavily on Chairman Lee is a poisoned chalice," said Kim Sun-woong, head of shareholder activist group Center for Good Corporate Governance.

"Group companies can't make their own independent decision and they have to follow what the chairman says. If you think about Samsung without Lee, it is difficult to imagine that its management, which has become so used to the influence of Lee, will be able to run Samsung independently and efficiently.

Back in Las Vegas, Jay Lee strolled over to the booths of his Japanese rivals after chatting with the Korean reporters. He was especially interested in the 3D televisions that can be viewed without those goofy glasses. Samsung doesn't offer one, at least yet.

He then donned some stereoscopic spectacles and sat down to watch Panasonic's 3D, along with Choi, the Samsung vice chairman, and the TV chief, B.K. Yoon. They can only hope he will see Samsung's future in such dimension and high definition.

(Additional reporting by Jungyoun Park and Hyunjoo Jin in Seoul and Tarmo Virki in Helsinki)

(Editing by Bill Tarrant)

Special Report: Can Samsung change with the tech times? (Reuters)

Posted: 26 Jan 2011 10:40 PM PST

By Miyoung Kim Miyoung Kim – Thu Jan 27, 1:40 am ET

SEOUL (Reuters) – Only a handful of reporters were at Samsung's booth at the Consumer Electronics Show in Las Vegas earlier this month when Jay Y. Lee dropped by.

Yet that's still less than half of Apple's $320 billion market value.

Samsung, which has had better net earnings than any other global tech firm except Microsoft and IBM over the past decade, is set to report its lowest profit in seven quarters when it issues December quarter corporate results on Friday, although 2010 will be another record profit year.

In a statement to Reuters, Samsung Electronics said its strong performance during the aftermath of the global financial crisis has proved the value of its management model.

To catch up, Samsung has vowed to inject some Silicon Valley culture into the ranks of its salarymen.

And yet big business is fraught with risk in South Korea, where the public seems to have a love/hate relationship with the family conglomerates or chaebol that have long dominated the economy.

REWARDING INNOVATION

But Sung-sik's story also illustrates Samsung's essential challenge -- it only developed the Galaxy after Apple took the market by storm with its latest iPhone early last year.

Samsung's TV business has unveiled a new business slogan, "Samsung creates and others follow" but it's the other way around for other products. The Galaxy S is an imitation iPhone that runs on Google's Android operating system. And the Galaxy Tab is basically just a bigger version of its smartphone.

Samsung Group plans to spend 12.1 trillion won ($10.7 billion) this year on research and development, up from 10.6 trillion won last year and 8.8 trillion the year before.

What is not clear is how much of that will be spent on reshaping the business to add more content, on its TVs for instance, in a market where flat screens will all be offering the same features and the only the cheapest producers will win in a race to the bottom.

Samsung's history is filled with such shifts.

THREE STARS

The chaebol borrowed so much in this cozy environment that eight of them collapsed in the Asian financial crisis and the rest were left wobbling. The "IMF crisis" that ushered in sweeping economic reforms, coupled with a more democratic system, has largely dismantled this old nexus. But as recent cases show, the creative book-keeping and payola scandals of yesteryear remain a problem.